Payment systems go mobile

You can now take electronic payments from your customers when they or you are mobile. We explain the new payment card, payment gateway and merchant account options in this story.

For nearly a decade, merchants in Japan and South Korea have been able to take payments almost anywhere, but in Australia, mobile payment methods have been hindered by a lack of enthusiasm from retailers and banks, plus frustratingly low mobile connection speeds.

Whether it is online through iPhone and Android apps, in-store using wave-and-pay credit cards, electronic key rings, or proximity-chips on mobile phones, consumers now have many more opportunities to part with their dollars digitally.

According to research by Nielsen, mobile commerce, or ‘m-commerce’, generated $155 million worth of retail transactions in Australia in 2010.

While that is still a tiny portion of the $114 billion of retail sales excluding groceries and dining in 2010, it is a considerable increase on previous years. For PayPal, it represented a 14-fold increase compared with 2009. eBay alone sold 2.5 million items through mobiles in the same period.

“Since 1999, mobile payments have been crying wolf: it’s coming, it’s coming. But I can say with confidence now, the wolf can stop crying: mobile payments have arrived,” says Rahul Shinghal, Regional Head of Mobile Products at PayPal Asia Pacific.

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“In total payment volume, we’ve never seen a segment that grew so much so quickly.” In an indication of the pent-up consumer demand, Shinghal reveals 10 per cent of PayPal’s 3.6 million customers used mobile payments last year, up from 1 per cent the year before.

The Internet and the rapid adoption of smartphone apps had a lot to do with it. Shoppers can now buy on eBay, Deals Direct, Webjet and Event Cinemas without opening a Web browser.

From the point of view of small businesses, m-commerce is also a winner.

Online retailer oo.com.au’s Marketing Director James Mooring says his customers spend 50 per cent more when buying through the mobile phone compared with his store’s Website.

Research among the top 3,000 eBay sellers in December and January showed local retailers are keen. More than 70 per cent believe mobile commerce would positively impact their business, while 62 per cent plan to keep, grow or start using mobile commerce soon.

Consumer concerns

But barriers to mobile payments still persist.

Nielsen’s research found 51 per cent of smartphone users still worry about the security of conducting payments on a phone, while another 38 per cent said they were not comfortable doing so, naming slow connections and security as reasons.

Visa’s Director of Innovation Ben Pfisterer says mobile phone payments are more secure than using credit cards: “You can put a PIN on the phone, you can’t do that on cash, and you can put a PIN on the app,” he says.

According to MasterCard, 35,000 merchants are now capable of taking mobile payments (see ‘Swiping stuff’, below).

Visa’s Pfisterer says m-payment adoption had been slow up until now due to the perceived lack of consumer demand, technology delays and resistance by merchants who finance the terminals.

“The trick with acceptance of the hardware upgrade is the investment. We have to ensure the merchant can extract value from the transactions before they start spending money,” Pfisterer says.

However, he says Visa studies show contactless payment methods can make transactions three times faster than when a card is inserted and a PIN entered into the machine, deducting 20 to 30 seconds each time. Although consumers may not notice the difference, he says it adds up for merchants.

“It’s the merchants who are really savvy, and can account for every second, that see how it equates to millions of dollars a year.” Swiping stuff This contactless payment method is branded as either Visa payWave and MasterCard PayPass. Some 35,000 terminals accept it in Australia including ones at McDonald’s, JB Hi-Fi, 7-Eleven and Bunnings, with 25,000 taking cards from both issuers. Purchases below $100 don’t require a PIN.

Credit cards have an antenna embedded in the plastic to enable Near Field Communications (NFC). It connects wirelessly to the terminal on ‘tapping’. Although the range can be extended to a few inches, MasterCard says it prefers to keep the distance required for the ‘tap’ very short for enhanced security.

Most of the cards currently in circulation in Australia are MasterCard — some 5.3 million, according to Andrew Cartwright, MasterCard’s Country Manager.

NFC can also be embedded into mobile phones — Samsung says it’s Galaxy II will be one of the first handsets to offer the technology, and Nokia has announced all its phones will have the functionality by 2012.

Existing phones with MicroSD slots can also be turned into NFC devices. Visa is trialling an iPhone case that carries the MicroSD card and allows payment at the contactless terminals.

MasterCard has declared that all bank-issued credit cards must be PayPass-enabled by April 2014, so it’s just a matter of time before your business could take them. Most banks would upgrade their merchants’ machines by that date anyway, Cartwright says.

MasterCard also offers NFC key rings and even a wristwatch, but these tend to enjoy more popularity in Asia.

Mobile phone Apps M-commerce and m-payment apps have arrived at most app stores. While some are the accompanying app for wave-andpay transactions, others are full portals for electronic retailing.

Roses Only, Greater Union Cinemas and oo.com.au have apps that simplify online purchases. PayPal launched an app last year that allows account holders to pay for goods on third-party Websites, send and collect money from each other and split bills. It wants to work with more retailers to design apps and sites using its checkout facility.

Last month, American Express launched its version of such a service, called Serve, in the US. It comes complete with an accompanying reloadable card to be used offline at retailers that accept Amex.

Google also is reportedly working on an app with MasterCard and Citigroup in the US to offer proximity payments (and presumably, location-based electronic discount coupons from Google’s advertisers) on Android phones.

Most mobile phone apps offer direct Internet connections — they work over a 3G network or via Wi-Fi. In cases such as MasterCard’s PayPass, they use over-the-air personalisation, which configures the phone app to connect directly to the contactless terminals, bypassing the Internet.

Lillian Zrim, Senior Research Manager, Nielsen Online Division, says retailers should consider apps as well as a mobile-optimised Website.

“It’s a really good strategy. Most of the traffic at the moment is coming from the (mobile) browsers, not just applications.” Mooring says it is important to track how customers behave on each channel, instead of worrying about cannibalisation.

“We see it as an opportunity to see what customers are responding to.”